If there's an éminence grise in the world of international political economics, it's C. Fred Bergsten. In fact, he pretty much coined the term. After a storied career in the US government, from the White House to the Treasury Department, he founded what's now called the Peterson Institute for International Economics, which is counted each year among the world's most important think tanks. As he prepared to step down from running the institute, Bergsten opened up to Foreign Policy about why politicians still don't get economics and why China's a much bigger threat than anyone thinks.

When Henry Kissinger was national security advisor under Nixon, he asked me to take a job as one of his economic deputies. He said, "Fred, I want to make a deal with you. You do everything in my name and never bother me." I was 27 years old. It worked for a couple of years, but then some really hot issues started to require his personal involvement, and he just wouldn't do it. After a few months of that, I went in and told him I was quitting. He was shocked and asked why. "Henry, arms control, US-Soviet relations—all those things can wait until you clear your inbox," I said. "But the world of economics and finance does not wait until you clear your inbox. And therefore I can't do my job right."

I don't think there's been much change in the economic literacy of America's foreign-policy establishment since I first started. They were not very literate then, and they're not very literate now. The problem is that the individuals who are at the top of the foreign-policy hierarchy, both at State and at the National Security Council, tend to be less than sophisticated, shall we say, about economic issues. It's not part of their DNA to think about economic topics when they go about their business with Syria or Iran or Russia, not to mention Europe or China.

So when you get a big, systemic clash like we have with China currently, economic issues—which are, of course, huge—get trumped by wanting to keep China on our side vis-à-vis North Korea or Iran or in the Security Council. And so the US government's economic agencies are sidelined and can't be as forceful as they might. That, in turn, is readily understood in Beijing; they get away with a fully open world economy but do not have to play any leadership responsibility and don't even have to comport with the current rules of the game—like on exchange rates. And that's a huge shortcoming in US policy.

Currency competition has come back with a vengeance, led by China. Here's the world's second-biggest economy and the biggest global trader, aggressively and blatantly manipulating its currency for over five years to keep it hugely undervalued. That's exactly what the whole Bretton Woods system was designed to avoid replicating after the 1930s, so in that sense the system has failed the stress test.

China is the new superpower but certainly shows very little sign of being ready to step up and play a global leadership role. The biggest existential risk to the current global economy is that the traditional problem of engaging the rising power in the system could once again be fumbled. It was fumbled in the late 19th century with the Germans. It was fumbled again in the interwar period terribly—and with disastrous results. This could be another of those disastrous periods.